Construction—looking ahead to 2017

Construction—looking ahead to 2017

What are likely to be the most significant legislative and regulatory developments and why?

Adrian Bell, partner in the energy, projects and construction disputes team at CMS, Hamish Lal, head of construction at Akin Gump Strauss Hauer & Feld, Tim Hillier, senior associate at Trowers & Hamlins and Alan Muse, director of built environment professional groups at RICS consider what lies ahead for construction in 2017.

This is an excerpt from a construction analysis, published on Lexis®PSL, which also takes a look at what are likely to be the most important cases, the impact of Brexit and client and business developments. Si gn up for a free trial to access the full analysis on Lexis®PSL Construction

Apprenticeship levy

From 6 April 2017, all companies with a payroll of over £3m will pay a 0.5% levy against the amount of their payroll, with an annual allowance of £15,000. Once paid, if based in England the company will be able to access funding for apprenticeships through a digital account (with different schemes applying in Scotland, Wales and Northern Ireland). By 2020, the plan is for all companies, not just those required to pay the levy, to have access to funding.

Gender pay gap reporting

The Equality Act 2010 (Gender Pay Information) Regulations 2016 are expected to come into force in early 2017. They will require employers in England, Wales and Scotland with 250 or more employees to publish their gender pay data in respect of their employees. This will include the median and mean calculations, plus the number of men and women within salary quartiles. In the event of any pay gaps, companies will have to provide a narrative to explain the cause and also set out any remedial action they intend to take. The first data snapshot is expected to take place in April 2017, with the results likely to be published later in the year.

The construction industry scheme (CIS)

On 6 April 2017, amendments to the Income Tax (CIS) Regulations 2005 (SI 2005/2045), will come into force. The CIS currently applies to contractors and subcontractors providing construction operations in the UK, with the aim of limiting the amount of tax lost as a result of subcontractors failing to report, or under-reporting, their tax. It works by withholding tax at source, paying the subcontractor with a deduction depending on their CIS status. Currently contractors are required to submit their subcontractor payment returns online. From April, contractors will also be required to verify the tax status of their subcontractors online, with limited exceptions.

Payment reporting

Section 3 of the Small Business, Enterprise and Employment Act 2015 (SBEEA 2015) is expected to come into force on 6 April 2017. This will impose a duty on large companies and LLPs to publish a twice-yearly report on payment practices, including standard payment terms and time taken to pay suppliers. The aim is to make it publicly known when companies are bad payers in order to encourage better payment practices. Failure to file or publish a report imposes criminal sanctions at director level.

Project bank accounts (PBAs)

From 31 October 2016, all building projects procedure by Scottish government bodies with a value of over £4m, or £10m in the case of civil engineering projects, are to incorporate PBAs. This adds to the existing government policy in England supporting the use of PBAs and should help to increase familiarity and confidence as to their use within the industry.

Public procurement

There is a widespread belief that the Public Procurement Rules, namely the Public Contracts Regulations 2015, SI 2015/102, the Utilities Contracts Regulations 2016, SI 2016/274, and Concession Contracts Regulations 2016, SI 2016/273 will, post the UK’s exit from the EU, need to be repealed or amended. However, we do not see this—the UK had a procurement regime before joining the EU. There was no single regulatory framework prior to the EU, but compulsory competitive tendering for local authorities together with public bodies’ own internal rules and policies for procurement were in existence. Further, the UK’s approach to implementing EU procurement law has deliberately exceeded the minimum requirements imposed by the parent directives.

For example, the NHS (Procurement, Patient Choice and Competition) (No 2) Regulations 2013, SI 2013/500 included further regulation to the procurement of NHS healthcare services by NHS England and Clinical Commissioning Groups. The Public Contracts Regulations 2015 included more rules in Part 4 concerning, among other things:

  • advertising on Contracts Finder
  • use of the Cabinet Office standard pre-qualification questionnaire and rules relating to sub-threshold contracts, and
  • SBEEA 2015 imposed greater duties on authorities relating to their procurement processes and to investigate the processes of authorities

Reform of the UK public procurement regime is highly unlikely.

Pre-action protocol

We have a new pre-action protocol for construction disputes, which came into force on 14 November 2016. The key changes in the new protocol are:

  • parties may now consent to not use the protocol
  • the parties no longer need to provide ‘full’ but only ‘sufficient’ information to allow the parties to understand each other’s position
  • only in exceptional circumstances will the parties impose costs consequences for a failure to comply with the protocol
  • the detailed requirements as to the content of the letter of claim, letter of response, and any response to counterclaim have been relaxed•there is more emphasis on the pre-action meeting taking place in the form of a mediation
  • parties may agree extensions to a step in the protocol, but each step cannot exceed 28 days in aggregate.

(See News Analyses: Exploring the new Pre-Action Protocol for Construction and Engineering Disputes and Introducing the new construction protocol referee.)

The intention of the protocol appears to be to reduce costs of the pre-action process in construction and engineering disputes, and to allow the parties the flexibility to bypass the process and go straight to court. In many instances, the issues have been thrashed out between the parties during the final account process (or before) and therefore the pre-action protocol can be seen as another layer of legal cost before a final decision can be achieved. However, there remains merit in fully investigating a claim before submitting to court (especially given the increased court fees) and the new protocol appears to detract from this. In 2017 we will see the impact of the new protocol, and if it has any substantive effect on parties’ behaviour and investment in claims before issue.

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